Ever since Enron collapsed into a smoldering heap nearly two years ago, regulators and lawmakers have scrambled to shore up confidence in the nation’s financial markets and corporate boardrooms.

They’ve passed the Sarbanes-Oxley Act; they’ve slapped Wall Street firms with huge fines. But the cleanup is far from over. Regulators’ next target? The $6.8 trillion mutual fund business.

Although the industry has long claimed to be the friend of the little investor and the champion of corporate responsibility has quite a few unsavory secrets of its own. Most of them center on unseen fees and conflicts of interest in the way funds are sold.

“There are undisclosed financial motivations in damn near every transaction involving mutual funds,” says Edward Siedle, a former mutual fund executive and attorney for the Securities and Exchange Commission who now investigates abuses at money-management firms for pension funds.

And in trying to fix the worst abuses, regulators and lawmakers could deliver yet another blow to the already shaky Wall Street firms that peddle the lion’s share of the fund industry’s offerings.

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